To spend or not to spend?

If you were a benevolent, omnipotent deity, governing the UK economy at the moment, what would you do?

Assuming that is, you can’t cheat, and help us all by creating a new set of oil fields or offering us free car insurance.

Would you drive consumers into the shops to spend more to boost the economy?

Probably not.

Consumers are saving well below their long run average. We probably need a consumer slowdown of some kind, and we need to wean our economy off the growth that depends on consumers constantly increasing their debt to income ratios.

But while a slowdown is desirable, an abrupt or dislocating halt to all spending is not.

It goes back to John Maynard Keynes and the so-called “paradox of thrift”. Saving is good, but if we all try to save too much simultaneously, we all end up in an economic quagmire as spending dries up, incomes contract and the economy shrinks.

ShoppersSo the question that arises out of today’s retail sales figures is whether the slowdown is now going too far for our own good? Today’s figures were far worse for the shops than expected; worse indeed than the survey from the British Retail Consortium earlier in the month implied.

It is true that in the last three months spending rose by 0.4% and so there are no grounds for panic. (In fact, that 0.4 per quarter amounts to about 1.5% a year, which looks about ideal if you want a gentle slowdown).

The problem is that the decline in the three monthly growth rate has been very rapid, and it could turn negative or seriously negative fairly quickly.

And we need to be aware of the discounting that occurred. For example, buried deep in the data that we got today is the astonishing fact that in household goods stores, prices in December 2007 were more than 8% below their level in 2006. There hasn’t been any deflation like that in recent memory.

So if I were a deity looking after the economy, I would not be programming British shoppers to do their patriotic duty and spend money but I would be ensuring they spent something.

If the power of the consumer to rescue the economy is limited, what else could the almighty do for us? What other options are there for protecting the economy against the risk of a deep slowdown?

He or she could encourage the chancellor to loosen fiscal policy i.e. spend and borrow more and possibly cut taxes? That’s what the Americans are talking about today.

That is an idea for an economic rescue. It’s pure Keynes in fact, another of whose massive contributions to economics was to point out the power of fiscal policy when other policy tools are failing.

But in Britain today, you would probably say that the slowdown is not yet bad enough to merit any special action plan. And there is the small matter of the Chancellor’s Golden Rule. The rule might be breached if the government deliberately went out to spend and borrow more.

In fact, the British government is not that dissimilar to British consumers in having overstretched itself in recent years. With a deficit of about 3% of GDP this year (a year in which the economy has grown strongly despite all the financial market problems) the room to loosen fiscal policy is not really there.

So what else is there that could be done to help the economy? Probably the answer in the UK is for our deity to push down sterling.

That should have the effect of promoting exports, inhibiting imports, and thus reducing the country’s manifestly unsustainable trade deficit. At the same time, it would cushion the country from an excessive slowdown, by allowing households to save more while foreigners take up the slack and buy our goods instead of us.

If a weaker sterling is what the almighty would prescribe for the UK, it is of course what the invisible hand is already delivering to us too. The pound has had a strong year against the US dollar, but don’t be fooled by that. Against the euro, it has tumbled, and carries on tumbling.

And that means what an economically-literate deity would be striving for in the UK this year is re-balancing away from consumer spending, towards trade and exports, with the minimum possible slowdown in the process.

Unfortunately, the process of a significant economic re-balancing is never smooth.

And this one is no exception. Exports will struggle to offset the decline in consumer spending; exports may not take off at all if our customers in the rest of the world face financial troubles of their own. And we still have the problem that there may be a some inflation embedded into the economy – in which case we won’t be able to let sterling fall too far for fear that it will raise import prices in doing so.

So I’m afraid that this will be a difficult year even if it goes well. There’s little point in hoping that government or consumer spending can change that.

Even if we put ourselves in the lap of the gods, we won’t avoid some kind of slowdown in 2008.

Comments   Post your comment

  • 1.
  • At 04:06 PM on 18 Jan 2008,
  • Stephen Wyman wrote:

Speaking for myself and providing that my job remains secure during the slowdown.I would cut back on Health Plans, The Sky Movie and Sport Channels, Holidays and utility breakdown insurances. I would also look to early surrender any endownment polices that I may have and replace them basic life cover.

This runs the risk that I may have to replace items at a faster rate than I envisage and rely more heavilly on the NHS. However given a disaster free period, these cutbacks should create some significant savings and bring down my credit card balances.

With regards to Consumer Spending I do not think that I would actually cut back on that as such action runs the risk of backfireing on me in the long run.

So I think that it is the Service Industries that are more in danger from this predicted slowdown than physical consumer spending.

  • 2.
  • At 04:06 PM on 18 Jan 2008,
  • Scamp wrote:

This is an easy question to answer..

I'd call in all the head honchos in the City and read them what the Chief Economist of the World Economic Forum said when commenting on the recently released Competitiveness League Tables that put the USA at the top yet again... She said :-

"The US gets its leadership position through a winning combination of highly sophisticated and innovative companies that lead the world in research and development and operate in very efficient and large markets. This is buttressed by an excellent university system that works closely with business, a very flexible labour market, a unique ability to attract talent and a financial sector that supplies the needed capital for risky innovation ventures. These strengths allow the US to overcome weaknesses related to its macroeconomic imbalances"

I'd then add that unless their respective companies adopt the same attitude over providing capital for risky venture then their lives would not be worth living.

It is now of critical importance that the balance of the UK economy changes and changes fast. This all our eggs in one big basket approach doesn't work anymore.

  • 3.
  • At 04:23 PM on 18 Jan 2008,
  • Ian Harris wrote:

I would look to clear any high interest debts and reschedule others if you can to better deals. I would imagine credit card companies are very very worried at the moment. They may well be glad to get all of their money back at a lower rate of interest than push loads of people into IVA's or bankruptcy.

I think the numbers getting IVA's in Q4 2007 & Q1 2008 will be very informative as to just how strong or weak the UK personal finances are.

Like Post 1 I would look sensibly at what I could cut out easily and also draw up a plan of what I need and what I want and then finally things I can do without.

There is going to be a slowing down of the economy and money will get tighter this year. Now is the time to be sensible not silly.

  • 4.
  • At 04:23 PM on 18 Jan 2008,
  • Jim wrote:

One of the best solutions that not only incorporates government spending, reduces the requirement to buy foreign energy, creates domestic jobs, and ultimately lowers energy costs for consumers and businesses, is to pile more money into renewable energy and electric vehicles. If we make more energy in the UK, our trade deficit lowers, if we switch to electric cars our overall consumption of energy reduces through efficiency, and the designing, engineering and manufacturing of electric cars and renewable energy systems, increases skilled labour and builds domestic infrastructure for the future. Such a solution ticks all the boxes, and would make Keynes proud.

  • 5.
  • At 04:48 PM on 18 Jan 2008,
  • Geoff wrote:


Some education that 'you cannot spend yourself rich' and about the economic cycle could be a good start.

£3trillion unsecured debt.
£2.7trillion mortgaged debt.
Forecast 2008 5% house prices down
Forecast 2009 8% house prices down
USA slow down.
Global sub-prime not bottomed yet.
Forecast inflation 2008 4%
Non discretionery household and transport bills rising.
Job security decreasing.
Government nearly broke.

Many families just getting thru but many will be hit in 2008 as recession really kicks in.

High St binge, highly unlikely.

Lofty economic theory is interesting but not real life, sadly more grief to come in 2008 for the imprudent of our latter years.

As a boy in downtown Manchester in the 40/50s, I remember Chapel(shorter service than RC) giving us hell to save and be saved, it works !

  • 6.
  • At 04:49 PM on 18 Jan 2008,
  • John from Hendon wrote:

I shall continue to save myself but encourage others to spend. Let others spend beyond their means as they have been doing for the last decade(s), but as I am a congenital saver my main concern is to pick safe places to store my money be they banks or other investments.

I would not recommend spending on houses till the market has bottomed, unless you have to do so.

Be a canny consumer and buy what you need and as an engineer I would always recommend to buy by specification not fashion. Work out what you want or need from a product and buy the one that meets your needs. Do not buy gadgets just because friends and neighbours have them and make sure that you are capable of using them otherwise the utility or benefit that you hope to gain will not be gained and the money wasted.

Remember the difference between any car and a luxury up-market car is only the sense of one-up-man-ship that you feel and if you are so personality challenged to require such support then buy a luxury car, but I shall continue to buy cars by utility and specification not fashion and get my sense of on-up-man-ship when I sit in the traffic jam in the car in-front of you!!!!

In short there are no panaceas just carry-on as usual!!!!

  • 7.
  • At 04:57 PM on 18 Jan 2008,
  • Richard wrote:

"In fact, the British government is not that dissimilar to British consumers in having overstretched itself in recent years." But this is exactly where Brownomics have failed - running an irresponsible public sector deficit during the good years, leaving nothing in the public spending kitty for when the downturn arrives. Chancellor Brown has been guilty of deficit spending when the Government should have been putting money aside for a rainy day!

  • 8.
  • At 04:58 PM on 18 Jan 2008,
  • Trevor Anderson wrote:

Much more important than actual nominal falls or rises in interest rates is the general publics overall perception.

Key to that is the housing market. Whilst most people will be swayed by what is written in the press, difficulties in selling individual houses that occured will be discussed and passed on - in much the same was as someone tells 5 people of a bad service but only 1 of good service. Bad news always travels further.

Overall, I believe that the level of consumer debt is the largest problem, particularly with the Bank's improving their credit criteria which limits refinances. Rightly so too as they have be negligent in many cases (that said, so has the government and mainly GB who has taken the credit for people spending money they do not have which has allowed the economy to bob along nicely for several years).

What many people are not linking to the current situation is the vast number of people who are seeking bankruptcy or IVAs to get out of their personal debt crisis - abusing the Enterprise Act which the govenment created to support entreprenrialship. This is not a healthy postion to be in for any economy.

I can forsee a major crisis looming for the UK economy and whilst a limited downturn is required to housing prices and people need to control there spending urges and not borrow for day to day expenditure, I think everyone will unfortunately feel the pinch.

In addition, I do wish people would stop using the "poverty" formula of the number of people who earn less than a percentage of the average wage. This is wrong. If the average wage increases because a few rich people earn a lot more that doesn't mean that someone lower down is poorer. Also, when the BBC show pictures of the homes where some of the people in so called poverty live, why do they all have TVs, sky dishes and cars. True poverty is where people cannot afford to eat which we should all ensure never happens in this civilised country.

I would increase income tax and taxes to use Eurostar, Ferries and Planes; but decrease fuel tax and VAT to offset (to keep tax fairly neutral).

This would help bring UK prices down (controlling inflation), help deter people going abroad to buy goods (i.e. taking money out of the economy).

  • 10.
  • At 05:01 PM on 18 Jan 2008,
  • Kevin wrote:

If theres inflation? Include food, fuel and housing and inflation is rampant (at least compared to the last 10-15 years). The surest sign of this is the government repsonse, restrict public spending and the resultant pay disputes. Add this into the above argument, signs arent too good methinks.

I think it is important to remember that the retail sector is only one part of the UK economy. There may have been serious price deflation in this sector but if you look at other sectors of the economy - e.g. utilities - there is anything but deflation. I think the average British Consumer would tell you that their overall costs are going up. They may have got a few bargains in the pre January sales but a cheap designer outfit here or there won't account for much when the latest gas bill arrives.

Unfortunately the debt situation in this country is part of the deeply entrenched "instant gratification" culture that we live in today. The entire traditional model of Income and Savings is redundant in todays world and although Keynesian economics may still be relevant in some senses today the world is a totally different place.

The government needs to come up with new ways to reduce debt and promote savings and fiscal and monetary policy are not going to take the slack.

  • 12.
  • At 05:10 PM on 18 Jan 2008,
  • Peter Sketchley wrote:

This comprehensive & thoughtful analysis encourages a contemplative & serious review.
There is a contrast between my parents’ generation & my children's peer group, on 'debt'. It is an object lesson in shifting standards of self-reliance. I stand on the watershed, between the pre-WW2 adults & the post 60's babies.
I face both ways. I felt a twinge of shame incurring debt from any source, even a mortgage on our family home. Striving to shift this burden, whilst paying our inflation-prone family living expenses, occupied most of my adulthood. But, unlike my parents, I was sent a credit card to give 'Access' to easy spending. The name of the credit card company may have changed, but that source of easy credit boosted a willingness to buy consumer goods my parents would have 'saved' to purchase.
I, like millions of others, have boosted imports from the Far East, whilst watching our 'home grown' industries being dismantled & shipped abroad.
What is left of the 'make do & mend' thrifty ways of my parents' generation?
Not much, that is for sure. The shackles & stigma of debt was replaced by a yearning for possessions that are truly superficial &, in many cases, unnecessary. Perhaps now is the time for a reappraisal of the real necessities of life: not the effort needed to support glittering high street shopping malls.

The thing the government needs to do is to curtail the unending and large jumps in the cost of living through energy bills. If all peoples wages are going on paying for the electricity bill what incentive do they have for other luxury items.

  • 14.
  • At 05:26 PM on 18 Jan 2008,
  • Bill Rees wrote:

Does the High Street reflect the real picture on retail spending.Figures show 50% growth last year on online internet shopping.The reason goods are far cheaper.

  • 15.
  • At 05:43 PM on 18 Jan 2008,
  • Mark wrote:

The public have lost faith in saving, interest rates have been barely above inflation for years and could soon fall below inflation. Neither does the stock market look more tempting than it did a year ago. I have been buying commodities, not just natural resources, i mean high quality electronics that will last a lifetime, bulk purchases and gold. This makes me feel secure in a way that neither cash nor stocks nor the value of my house ever will. In 2006 I spent the entire year spending just
£40 a week just to prove it can be done. All of the best things in life are free, so long as you can cook and you have got your health. Great that houses are crashing, I lose £100,000
i never believed I had and my friends might finally escape the rent bind.

  • 16.
  • At 05:52 PM on 18 Jan 2008,
  • R.Polkinghorne wrote:

In the early 1970's,when my wife and I first married, and had two young children, we had to survive interest rates on our mortgage suddenly climbing to 15%. WE survived, just, and learnt a valuable lesson in thrift. Subsequently we have never since spent above our savings.
Now, as pensioners, we have to live largely off interest on our savings.
Perhaps the current correction in personal econimics will do the country good.
This governemet however should have known better. For years this country has survived by selling off the family silver of GBUK. Now the country is essentially broke.
One question for the experts. Given the problem of sterliings strength against US Dollar, but weakness against the Euro, is now the time for the Euro to become our currency?

  • 17.
  • At 05:54 PM on 18 Jan 2008,
  • Susie Sunshine wrote:

As a family we are debt free - we sold our properties before the big slide.,have invested at a good return, and are renting cheaply. Our jobs are basically recession proof. With any luck we will be in a position to take advantage of the bad luck/mismanagement of others when it really hits the fan. This attitude is typical of the UK today, and is why we no longer deserve to be called Great.

  • 18.
  • At 05:57 PM on 18 Jan 2008,
  • Mike Holmes wrote:

We need to look to Mises for the answer: the economy needs periodic recessions to clear out misallocation of resources and prepare for new growth.

The mistake has been to try to avoid recession for so long. The suspicion has to be that we've merely stored up a worse recession.

That we need one can't be in doubt. House prices have risen so much that people need to go into hock for two lifetimes just to own one. Hopefully a recession will bring the 50% to 90% fall in house prices that the same situation in Japan gifted.

People also need reminded that debt is a treacherous friend. It seems that every third generation must learn that lesson, and Teacher last left the classroom in 1929...

We've collectively wrought the largest credit bubble in history. We've no reason to expect that the denouement won't be on a similar scale. It will hurt, but we'll be all the better for it.

  • 19.
  • At 06:11 PM on 18 Jan 2008,
  • Lynne wrote:

The "feelgood" factor is pretty crucial to the economy. Large parts of the media are aiming to create a recession rather than a slow down - Evan should consider his role in this. Even when there is growth in retail spending, commentators complain that the rate of growth is not as big as they wanted.

We need a slow down - but not a recession.

House price inflation must decline if younger people are to get on the housing ladder. The level of personal debt is ridiculous.

We also need to deal with greedy idiots who think that Americans with salaries that will never pay a mortgage once the "special deal" is over - and the idiots that then buy the debt, presumably assuming that the mortgagee will magic money from somewhere. Sadly, these idiots are the ones who are pretty much insulated from the realities of recession and economic slow down - they'll move on to another job in finance, sadly having to delay the yacht purchase for a year or two.

  • 20.
  • At 06:37 PM on 18 Jan 2008,
  • Charlie wrote:


This 60 year experiment with corporate fascism is just about up, the lies and deceit of the gov't, media and you economists is being blown open. The future? - Parity with the Euro, millions of service jobs down the pan, a housing price crash, a stockmarket crash worse than ever before. The cure? - scrap this fake system now, come clean man.


  • 21.
  • At 06:38 PM on 18 Jan 2008,
  • Paul London wrote:


How can you advocate the devaluation of sterling? This is fundamentally flawed:

1. This will only add to the inflationary pressures we are importing, putting even more pressure on the BoE.
2. The devaluation is robbing savers of the purchasing power of their savings, at the expense of those in debt. How is that fair?
3. As a nation we really don't export very much, and any spike in exports is in no way a basis to justify 1 and 2.

  • 22.
  • At 06:42 PM on 18 Jan 2008,
  • psmith wrote:

Totally of topic, But why on Earth do people keep referring to Gordon Brown as one of the best chancellors Britain has ever had?

Any Idiot can borrow a country rich!

  • 23.
  • At 06:47 PM on 18 Jan 2008,
  • Matt wrote:

In some ways I think a tough economic year will give Britain some much-needed 'medicine'; house prices and consumer spending have long needed to be brought under control, and a check to them was inevitable.

Tony Blair's self-preservation society has failed to correct the social and cultural disintegration instigated by Thatcher, for all its financial trappings and City bonuses. Perhaps today's children will grow up with a greater appreciation of what they possess and the opportunities available to them.

  • 24.
  • At 06:53 PM on 18 Jan 2008,
  • George wrote:

Evan, why do you not directly blame Gordon Brown and Labour policy for the coming recession? He artificialy pumped up the economy with borrowed money to buy public sector jobs and votes, changed his criteria for his 'golden rule', whilst he should have been saving during the good times. Now that tax revenues will fall due to an over-taxed economy, his borrowing will get even worse, and I am quite sure you will support him when his definition of not taking risks with the economy is to borrow more and not to cut back on public spending and jobs.

  • 25.
  • At 07:07 PM on 18 Jan 2008,
  • Katie wrote:

Our government could just stop raising taxes -- our tax levels as a proportion of GDP have been steadily rising for some years due largely to fiscal drag and "stealth taxes" - the charges and duties which seem to have become part of life, but which somehow aren't considered taxation. The parking charges at the hospital, the fees for getting a passport and all the other extra payments required to get the public sector to do the things that it's supposed to do from central taxation.

Much of this goes on unproductive work. The London Congestion charge is eight pounds, and is eight pounds less that the payer can spend. However four of it is spent just collecting it, so only half remains to improve transport with.

We have been pouring money into public sector services, which have falling productivity. Every year it costs more (even accounting for inflation) just to have the same number of patients treated or kids education.

Taxes increase inflation by compressing wages; if the price of bread goes up 1%, the workers need a 1% rise in their takehome pay to be in the same position. However this currently needs a 2% rise in their cost to their employer (after tax, NI, employers NI etc).

This means the employer's costs (and therefore prices) have to rise 2% to keep their staff...

It is time for the government to cut back on the ambitious projects (which are discredited anyway by historic failures) and to fund the money saved into tax cuts and increased pensions -- putting the money back into the economy.

Simplifying the tax system, reducing its own large costs to employers and the inland revenue wouldn't hurt either.


In a world of easy credit, simple bankruptcies, pension tax credits and bottomless credit cards can you explain why it is still the case that "saving is good"?

  • 27.
  • At 07:25 PM on 18 Jan 2008,
  • R J Butterworth wrote:

Is there a problem with how we run our economy.
America spends its way out of trouble - see G Bushe's latest suggestion of a massive tax reduction to boost spending - we always seem to be asked to pay increased prices for tax and utiliies and are forever being asked to tighten our belt !!! Isn't it about time we became more adventurous as a nation.

  • 28.
  • At 07:56 PM on 18 Jan 2008,
  • Don Wilkinson wrote:

Surely, the use of a single interest rate is too crude a tool to use when trying to manage a complex economy such as ours.

There is a case to be made for controlling (encouraging) different sectors of the economy to behave in accordance with the total economic strategy of the country by having (say) 2 or 3 different levels of borrowing interest which would allow business and industry to invest at lower penal rates than the domestic consumer.

Business and industry wants (needs) financial stability to plan. This can only be achieved if the cost of their borrowing can be divorced from the cyclical movements of confidence and "feel-good" factors (house values, etc) which dictate how we all spend our personal income.

Just because I choose not to have more foreign holidays, or buy a new fitted kitchen, should not inhibit a Start-Up enterprise or an established manufacturer from borrowing cash to develop its business, and eventually add to our GDP.

Public spending is another ball game entirely...............

  • 29.
  • At 08:07 PM on 18 Jan 2008,
  • Jeremy Poynton wrote:

Household goods being exactly what? I think everyone's' experience is that food, fuel and energy prices are rising at an unprecedented rate (i.e. the things we all cannot do without ERGO the poorest get hit the hardest, and that after having had their basix rate of tax doubled by this champion of the working man, Gordon Brown), and that Brown's 2% figure is a blatant lie - and that he should be called on it.

Mind you the worse it gets the sooner he goes. What was it that bloke said once, "No pain no gain" :-)

Although the reduction in consumer spending is measurable my question would be what is the BRC measuring? Behind my question is the fact, based on my experience as one of the first internet retailers in this country, that since 1995 established British retailers have been in denial about the transparency the internet has bought to the reseller function. Consumers are not idiots. They are increasingly deserting traditional retail outlets for the internet because they can properly check prices and find the best deal. If BRC is concentrating on statistics from physical (rather than virtual) resellers then frankly, yes, the slowdown is real and the bad news is that it will not get better. I used to be laughed at when I forecast that high street stores would reach a tipping point where their balance sheets would be full of useless, unvisited real estate because their customers were staying at home and shopping online at their competitors. Yet, what have we seen? Dixons abandoning their brand on the high street and the canny Mr Branson dumping his Virgin music stores on the blinkered shoulders of his management (and probably laughing all the way to the bank). Reselling, has been hit by the disruptive force of the internet. Even more disruptive is the massive explosion of C2C (i.e. e-Bay) which has disintermediated the resellers even further. In contrast we've seen destination stores, like John Lewis, improve their position because if you are going to step outside your front door, you might as well go somewhere good. I believe that consumption has not changed, what has changed is where consumption has taken place, and I'm unconvinced that the BRC isn't in as much denial about recognising the influence of internet retail as are their members.

  • 31.
  • At 10:53 PM on 18 Jan 2008,
  • School dinnerlady wrote:

Surely any banks which have loaned millions of pounds to private equity companies (on the understanding that everyone will be quids-in when their acquisitions rise in value) must be getting a bit nervous. The relationship between risk and return seems very relevant now.

  • 32.
  • At 11:24 PM on 18 Jan 2008,
  • Richard Hancock wrote:

I intend to pretty much spend what I would have done if the economy were still powering ahead. Not so much counter-cyclical (a la Keynes) as acyclical.

  • 33.
  • At 11:38 PM on 18 Jan 2008,
  • Gary King wrote:

Evan Davis proposes that the UK exports more, but what do we produce which could be exported? This Government has ignored British manufacturing for years and has encouraged us all to buy cheaper imported goods, which have helped to sustain low inflation. Under Labour thousands of British manufacturing companies have gone to the wall, and many of the British products that are left are now manufactured overseas.

As a result it has become trendy to buy foreign goods and to mock anyone loyal enough to buy British, for example BBC's Top Gear's relentless slating of Rover, which even continues today 2-3 years after the company folded. Lets face it British manufacturing and the support of the British population for home grown products has been destroyed for good, so its best not to expect that exporting is going to pull us out of this financial hole! I'm not sure what will. I think the UK is in for a very tough time.

  • 34.
  • At 11:42 PM on 18 Jan 2008,
  • vitabrevis wrote:

The situation has occurred and is the fault of the policies that have been adopted by the people in control. Lending money to people who can't pay it back, taking advantage of and fueling the property market, encouraging (so called) growth, birth rates, and the need for all the trappings of the glossy high living celebrities, is hardly the way to encourage happiness amongst the vast majority of earners. If high income earners, and that includes politicians businesspeople and sportspeople are worth their salaries, and fail they should be held to account, certainly not rewarded. You can analyse happenings but learning from them appears a dying art. What is wrong with the status quo, or are we motivated by international markets totally? If so, why bother with a national strategy? Parity with the euro beckons!

  • 35.
  • At 11:53 PM on 18 Jan 2008,
  • jack wrote:

food for thought??????
I can predict the Big!!!!!!!!! crash!!!!!!! of the Thatcher years. Yes!!! we all thought we had it sooooooooo good. It is about time for the rich to feel the pinch an give way to the poor, well educated, hard working people who couldn't rent a house never mind buy one. We all all thought the get rich property boom was going to last forever. Now you rip of land lords can feel the pinch as the crash is happening, even thou you want to live in a greedy fantasy world of wealth and greed, when poor hard working Joe bloggs has no house or no hope of one. Greed is an awful thing an what goes round comes round. No matter what the papers, goverment,estate agents predict, there is only so much money to go round, the problem is a few have far too much , it should be spread about. Maybe this will be a lesson as things are going to get worse be realistic live an let live don't hoard money and property it is only paper an bricks an morter you can't take it with you, an it sure as hell wont buy your ticket to the next world. Food for thought?????

  • 36.
  • At 12:01 AM on 19 Jan 2008,
  • David Phillips wrote:

Geoff - your points would carry more gravity if your figures were correct. Total debt is about £1.3 trillion, so where do you get the almost £6 trillion from?

Strong demand for housing and low unemployment, together with robust emerging market demand put a limit on the severity of any UK downturn. You lambast "lofty economic theory", yet this is manifestly not what Evan talks about: if you wish to discuss such things, bring it on. The fact of the matter is that the general public is consistently overly pessimistic when it comes to the "general economic climate", and more optimistic and more accurate when it comes to their own income. The general public have thought we're in a situation practically every year since 2000; yet our economy has grown. 'Lofty economics' typically is right, whilst the backwards-looking 'real world' views of the general public are typically wrong.

  • 37.
  • At 12:55 AM on 19 Jan 2008,
  • Mike wrote:

If I were a benevolent, omnipotent deity, that's spent the last 10years sending my economy on a collision with a boom & bust cycle, what would I do?

Hmm, that's a tough one.

Well, first I'd take a long, cold objective look at the society that I have created and what I'd probably see is a major proportion of my economic machine dedicated to a services sector, that has it's financial institutional foundations currently looking down the barrel of a gun. In the minority proportion I might see an industrial sector incapable of offsetting my trade deficit, and an argricultural sector producing a small proportion of my society's food consumption.

So I'd try to predict the future and perhaps I might foresee a collapse in my services sector coupled with living cost inflation resulting in unemployment and/or a reduction in real wage income and so, poverty.

So what would I do?

I guess I'd have to take the hit because by this time I'd know that I'm not going to dodge that bullet, and whilst recovering I'd probably realise that the socioeconomic model of my society is inherently flawed by it's inability to function independently within the world arena.

So, I'd reshape the model to form a self sustaining society which invests heavily in the development of technology to contend on the world arena.

Ah, I guess its not that tough a question after all.

  • 38.
  • At 01:08 AM on 19 Jan 2008,
  • Chris wrote:

Trevor Anderson - you seem to be confusing two different types of average, mean and median (or so my vague recollection of GCSE maths tells me). The mean is calculated by adding up all the individual quantities and dividing the total by the number of quantities, whereas the median is produced by placing all the quantities in order of size and taking the one which is half-way down the list - so if you have five quantities, the median is equal to the third largest one. It is the median income which is used in calculating the poverty threshold. Therefore variations in the incomes of the very rich do not make any difference whatsoever to the median, since it is determined by the income of the person in the middle of the range - let's say the 30 millionth richest person in a population of 60 million.

  • 39.
  • At 01:51 AM on 19 Jan 2008,
  • John Wrexham wrote:

dear evan davies,

any chance that you could turn your mind to answering sometime a few questions to which i don't know the answer

a) why is general inflation above 2% seen as bad, while house price inflation is seen as a good thing, even if it reaches double figures or more.

b) how can a country like the UK keep going permanently with a trade deficit, surely eventually our creditors will want paying?

c) how come the minimum wage on which you can barely survive gives you an income of around £11,500 and yet you have to start paying income tax at less than half that. is there any history behind how politicians initially decided our paltry tax allowance and why the figure is still so low?

best wishes

  • 40.
  • At 08:53 AM on 19 Jan 2008,
  • Astrid Horward wrote:

With all due respect to the writer of this article, I have been reading articles like these for the last 25 years. The writers change, the language evolves, but the message is just the same. our economy is an unsatiable monster, enslaving us all to feed it constantly and the more we do, the more it requires. The entire system is full of flaws, but it's like we are powerless to do somethings about it. We just keep on going, faithful servants that we are. Servants to the economy. The one thing we never do is ask ourselves: 'Why'. Such a tiny word, but such an important one.I don't think it is time to change our spending or our saving for that matter. It is time to change the economic system. We created it. We can therefore create another. Without growth. A flexible, socially just and environmentally safe concept. And we wouldn't have to be so afraid all the time about having another 'difficult year'. Find work we actually like doing. Have time and energy to recreate our communities. Be free.

  • 41.
  • At 11:05 AM on 19 Jan 2008,
  • Alex wrote:

The basics required are food, shelter and warmth.
Since we have had very low inflation for 10 years and the government is continuing to fight it, all will be OK.

Food - prices have been rising for over a year.

Shelter - house inflation has been rampant over the past 7 years, but of course officially, that does not count as a living cost.

Warmth - energy prices have been rising way above inflation for several years.

  • 42.
  • At 03:36 PM on 19 Jan 2008,
  • Taram wrote:

Mr Davis might like to consider that the coming recession has been widely forecast.

However rather like the case of the Iraq War and WMD the press was the
dog that did not bark and economics journalists refused to discuss the topic until it if forced upon them.

Mr Davis is still pumping out the "Dragons Den" views of the Corporate elite, the market will solve all our problems and I demand 59% of your company for my skill and knowledge.

Hardly an unbiased account Mr Davis.Murdoch would be proud.

For a more informative view of the crisis try

The Stimulus and the Meltdown

  • 43.
  • At 07:42 PM on 20 Jan 2008,
  • cdc280 wrote:

I think the biggest problem is that the housing market, the mainstay of our consumer confidence is now waining and will drop back by about 5-10% in the comming year. This will make many feel 'poorer' and make property a far less safe short term investment. Inflation is rising at an INCREASING rate and we're expected to keep the economy growing on a lower pay rise of 2%

If you were thinking of moving house, might be a good idea to hold tight...!

  • 44.
  • At 09:24 AM on 21 Jan 2008,
  • Jonathan Davies wrote:

Just to add something to Richard's point about the governemnt's spending too much during the good years: inappropriately loose fiscal policy may have also contributed to the overvaluation of sterling, which has had such a detrimental effect on the UK export sector over the past ten years.

  • 45.
  • At 03:32 PM on 21 Jan 2008,
  • anon wrote:

The comming recession is needed. people need to start saving again.
Savings enable you to invest and it is from investing and the resultant gains to productivity that wealth is created.

in reply to evan:
1.a weak pound leads to higher inflation (already over 4%), which causes second round wage inflation which causes even more inflation in a vicous circle.
15%+ inflation is not condusive to saving. we actually have any exporters any more?

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